New bonuses, pitfalls for taxpayers in 2005

January 25, 2005

By David Irvin

A new tax season often means new tax laws. This year is no exception. There are a number of changes that may assist taxpayers in filing their taxes and may qualify some for larger deductions and less taxes.
IRS Spokesperson Bill Brunson said this year’s changes are just business as usual. There aren’t more changes than usual, he said. However, he offers two pieces of advice:
“File early,” he said, “and if you can, file electronically.”
He suggested taxpayers click on the free file link on the IRS Web site to access companies that offer free electronic tax filing.
Local tax services that charge money say they offer additional services that makes it worthwhile.
Richard Barris, agent for H&R Block in Clovis, said for $48 they will prepare something as simple as the 1040 EZ, and the price escalates as the complexity of the job increases. Their firm will do taxes for individuals, businesses, partnerships and corporations.
“When we prepare the taxes we guarantee that they are done correctly,” Barris said. “If for some reason the IRS disagrees (with the filing), we would pay those additional penalties and fees on behalf of the taxpayers.”
Brunson said the average cost to the IRS to process paper tax returns is $1.51 and for electronic filing it’s 67 cents. The money saved in tax processing is money saved for taxpayers, he said.
Those who choose to use direct deposit can have the money from their return in their bank accounts as quickly as two weeks after tax returns are filed. For those who worry about the IRS having access to their bank accounts, Brunson said the idea that the IRS would abuse that access is tantamount to an “urban legend.”
“That is an incorrect view of what we do and how the government works,” Brunson said.
The IRS Web site lists several changes to tax law in 2005, and taxpayers can get more information about these changes by calling 1-800-829-1040.
Some changes to tax law for 2005 according to the IRS Web site:
• The maximum amount of the clean fuel vehicle deduction was scheduled to drop this year and next, but has been retained at the $2,000 level through 2005. People who purchase cars certified as clean fuel vehicles — cars that save gasoline and are powered partially through electricity — by the IRS are eligible to deduct the $2,000 on Form 1040.
The 2005 model Ford Escape Hybrid, 2001 through 2005 models Toyota Prius, 2000 through 2004 models Honda Insight and 2000 through 2004 models Honda Civic Hybrid qualify for the clean fuel vehicle deduction.
• A new deduction is available for those who pay attorney fees and court costs in connection with discrimination lawsuits. Generally, personal legal expenses are not deductible, but an employee who incurs legal expenses related to doing or keeping his job could deduct these expenses as a miscellaneous deduction, according to the IRS Web site.
• Some military personnel receiving combat pay get larger tax credits.
Brunson said military personnel can use this tax law to maximize their tax benefit when figuring the child tax credit and the earned income tax credit.
“Whatever gives them the best tax benefit is what they are allowed to do,” Brunson said.
Brunson refers military personnel to the IRS “Publication 3” that fully describes this change.
• The income level limits for using the 1040 EZ Form will increase from less than $50,000 to less than $100,000.
Tsunami aid deductions for 2004 taxes:
• Taxpayers who itemize deductions may claim charitable donations made during January of 2005 for relief of the victims of the Tsunami, a press release from the IRS shows. The new law enacted on Jan. 7 allows these donations to be deducted as if they were made after Dec. 31.
“This is unprecedented,” Brunson said. “The general rule is when you make a charitable donation you can claim it in the year you made it in.”
Brunson said checks or cash donations apply. You can only claim the charitable contribution amount for one year and must claim it all for that year, Brunson said.
The contributions must be made specifically for the relief of victims in areas affected by the Dec. 26 tsunami in the Indian Ocean. Taxpayers may deduct their contributions on their 2004 or 2005 returns, but not both.
The IRS advises taxpayers to be sure their contributions go to qualified charities.